JERSEY CITY, New Jersey – There are good reasons why North America produces relatively little API Group III base oil – far less than required by the region’s finished lubricant market.
But the market would be better off if there was more local Group III capacity, a Chevron official told a recent industry conference, adding that refiners in the region should increase their ability to make that category of oils.
Addressing the ICIS Pan American Base Oils and Lubricants Conference held here last month, Chevron Base Oils Global Industry Liaison Chris Castanien noted that the Group III situation in North America is just one several imbalances in the global base oil industry. In a number of regions, demand and supply of various base oil grades are not aligned.
In the Americas, most passenger vehicles run on gasoline, so refining capacity is weighted toward that fuel rather than diesel. By comparison, Europe, Asia and the Middle East are more skewed toward diesel. Refiners in all four regions employ hydrocracking to break down unconverted feedstocks, thereby increasing fuel output. But hydrocrackers are not all equal.
“Efficient diesel production requires a severe high-pressure, high-temperature hydrocracker,” Castanien said. “Diesel hydrocrackers process heavier feedstocks such as vacuum gas oil to produce diesel fuel, and after the fuels have been extracted, the unconverted oil that remains is well suited for Group III base oils.”
Asian and Middle Eastern refineries are on average younger and are diesel-focused with high-pressure hydrocrackers. Those regions also have good access to waxy, low-sulfur crude, which is optimal for making Group III base stocks. The crudes on which the Americas lean tend to be less waxy and higher in sulfur, making them less suited to make Group III. Plus gasoline hydrocrackers are less severe, and their unconverted yields again are less suited to make Group III.
As a result, North America makes mostly Group II base oil along with significant amounts of Group I, while Asia and the Middle East make most of the world’s Group III plus significant amounts of Group II. Europe’s refining industry is older and still produces significant amounts of Group I, along with Group II and III.
There are also regional differences in types of base oil needed, stemming partly from automobile regulations and original equipment manufacturer requirements. Castanien explained that the European Union has the most stringent fuel economy and emissions regulations, and that automakers now largely require 0W multigrade passenger car motor oils, which can only be formulated with Group III or IV base oils.
North American PCMO specifications are trending toward 0W oils, so that market’s requirement for Group III is increasing. Group II and Group III base stocks will also be needed for future heavy-duty diesel equipment.
The industry uses shipping to get base oils where they are needed, Castanien said, “but supply lines are long and vulnerable.”
This vulnerability came to the forefront during the COVID-19 pandemic, when many supply chain disruptions forced consumers to look for alternate sources of raw materials. Geopolitical tensions have also caused companies to reexamine their sourcing locations. “De-risking and near sourcing or ‘friend sourcing’ is under consideration everywhere,” Castanien noted.
Some factors that are beyond market players’ control, such as climate and weather-related risks, can also have a huge impact on the supply chain as observed during Hurricane Harvey, which caused major production outages along the United States Gulf Coast in 2017. Castanien emphasized that maintaining base oil and additive supply has been very difficult in recent years.
Castanien said that while there are many aggressive plans to address climate change and governments are supporting legislation that encourages the sale of electric vehicles, “the EV road may be bumpy” because the price of EVs is still too high and penetration levels are lower than anticipated. Bloomberg predicted that by 2040, approximately 50 percent of the existing global passenger vehicle fleet will still be powered by internal combustion engines that require OEM-approved engine oils, so the world will need a reliable source of base oil supply.
Castanien argued that suppliers should try to correct the current Group III imbalance by increasing production in the U.S,, citing high demand for these cuts in the Americas. Among the advantages of raising output levels in North America, he cited reduced logistics costs, output reliability, and lower carbon emissions due to the use of natural gas for operations along the U.S. Gulf Coast, which are among the most energy efficient in the world.
One question that often emerges is whether existing Group II plants can be converted to produce Group III base stocks. Castanien said that crude oil and VGO feedstock selection is very important – the right waxy molecules are needed – and that the hydrocracking technology and production units should be able to manage the higher conversion levels needed to produce high quality, high-viscosity-index oils.
He also said that the process requires greater hydrogen availability to manage higher conversion levels, and that the base oil yield trade-off versus fuels production must be favorable. As an example of a successful conversion of a Group II unit to Group III base stocks production, he mentioned Chevron’s Group III unit in Richmond, which manufactures base oils that have been part of the global Nexbase slate since 2019. Logistics and supply chain reliability support an increase in premium base oil manufacturing in the Americas, Castanien ascertained, and despite the various challenges and heavy investment requirements, he predicted that Group III production would likely be expanded in North America in the coming years.